Rush Street Interactive's Q3 2025 Earnings Call: Contradictions on Mexico's Market Strategy, Colombia's Tax Reform, and Strategic Focus Shifts

Date of Call: October 29, 2025

Financials Results

• Revenue: $277.9M, up 20% year-over-year (record quarter)
• Gross Margin: 34.0%, reflecting mix shift to higher-margin markets but offset by player-friendly sports outcomes, elevated bonusing in Colombia and an increase in New Jersey gaming taxes

Guidance:

• 2025 revenue expected $1.10B–$1.12B (midpoint $1.11B), ~20% YOY
• 2025 adjusted EBITDA expected $147M–$153M (midpoint $150M), ~62% YOY
• Guidance includes only markets live as of today
• Expect to maintain marketing leverage (marketing growth lower than revenue) and modest G&A leverage
• Anticipate seasonal Q4 strength and continued expansion (Alberta launch planned when market opens)

Business Commentary:

• Revenue and Market Growth:
• Rush Street Interactive (RSI) reported record revenue of $277.9 million for Q3 2025, marking a 20% increase year-over-year and marking the 10th consecutive quarter of sequential revenue growth.

• The growth was driven by strong player acquisition and engagement in higher-value markets, particularly in online casino markets.

• Online Casino Performance:

• North American online casino markets delivered 46% year-over-year growth in monthly active users (MAUs), contributing significantly to the overall revenue increase.

• The acceleration in player growth and engagement is attributed to unique gaming experiences and effective customer acquisition strategies.

• Operating Leverage and Profitability:

• Adjusted EBITDA increased by 54% year-over-year to $36 million, reflecting the operating leverage inherent in RSI's business model as it scales.

• This was supported by disciplined expense management and efficient marketing investments, resulting in improved profitability.

• Market Expansion and Strategic Focus:

• RSI is actively pursuing expansion opportunities, including a planned launch in Alberta and monitoring legislative developments in multiple U.S. states.
• The strategic focus on markets that include online casino leverages RSI's proprietary technology platform and marketing efficiency for continued growth and market share capture.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q3 an "outstanding quarter": revenue $277.9M (+20% YOY), adjusted EBITDA $36M (+54% YOY); raised full-year revenue guidance to $1.10B–$1.12B and adjusted EBITDA to $147M–$153M, citing sustained MAU growth, record first-time depositors and strong North American iCasino momentum.

Q&A:

• Question from Dan Politzer (JPMorgan): Your updated guidance implies Q4 incremental margins around 20% at midpoint—besides increased marketing, are there other puts and takes (e.g., sports betting unfavorable holds)?
  Response: Primary drivers are increased marketing to acquire new players and the ongoing Colombia VAT tax which is depressing gross margins and revenue.

• Question from Dan Politzer (JPMorgan): Mexico is considering higher gaming tax rates—was this anticipated and how would it impact operations?
  Response: Not anticipated at start of 2025; looks likely tax could rise from ~30% toward ~50%; there may be ways to reduce effective rate and the company will assess and update if enacted.

• Question from Bernard McTernan (Needham & Co.): What are next steps on Colombia VAT tax and probability it passes?
  Response: Management believes the President's reform requires congressional support and currently expects insufficient support for passage; if it fails, normal tax conditions should resume.

• Question from Bernard McTernan (Needham & Co.): Why promote Kyle now and what will Richard focus on specifically?
  Response: Richard will focus on accelerating online casino legalization efforts (industry alignment/lobbying), product innovation with the CTO, and higher-level strategic opportunities and capital allocation.

• Question from Jordan Bender (Citizens JMP): You appeared more promotional on sports later in the quarter—what market signals drove that and any elevated activity into Q4?
  Response: No dramatic industry shift; company is refining bonusing across markets to target the right players—no material change in overall strategy.

• Question from Jordan Bender (Citizens JMP): Colombia NGR was down ~27%—is this a deceleration versus H1?
  Response: Not a slowdown in player or GGR growth; net revenue fell due to elevated bonusing to offset the VAT and favorable sports outcomes that increased churn and withdrawals.

• Question from Ryan Sigdahl (Craig-Hallum): You announced payment partnerships (Sightline, BurraPay)—how did they arise, adoption metrics, cost savings and retention impact?
  Response: Partnerships stem from RSI's innovation reputation; intended to reduce friction and costs and improve player experience, but metrics/adoption are early and not disclosed.

• Question from Ryan Sigdahl (Craig-Hallum): If Colombia VAT becomes permanent, will operators change behavior and how does that affect outcomes for 2026?
  Response: Either outcome likely improves 2026: repeal yields direct revenue upside; permanence would prompt operators to reduce bonusing improving net revenue and profitability, plus RSI will lap prior bonusing.

• Question from Joseph Stauff (Susquehanna): Which states see substantial headwinds from sweepstakes operators?
  Response: Impact is state-dependent; Michigan and Delaware have been effective at removing some sweepstakes competition, while states like Virginia and Illinois still have active sweepstakes presence.

• Question from Joseph Stauff (Susquehanna): Were the record first-time depositors concentrated in particular states?
  Response: Yes—concentrated in iCasino markets (U.S. iCasino states and Ontario), reflecting focused marketing toward higher-value iCasino markets.

• Question from David Katz (Jefferies): Would RSI consider offering prediction markets if legalized?
  Response: RSI will monitor prediction markets but will not pioneer them; focus remains on core regulated casino/sports offerings and compliance.

• Question from David Katz (Jefferies): There were no share repurchases this quarter—what's the buyback philosophy?
  Response: Buybacks will be opportunistic, not programmatic; the company prefers flexibility to deploy capital for market entry or other opportunities.

• Question from Jed Kelly (Oppenheimer): What's driving iGaming acceleration in mature states—product, bonusing, share gains?
  Response: A mix: differentiated product/content, effective marketing and targeted bonusing are driving higher engagement, MAUs and record first-time depositors.

• Question from Jed Kelly (Oppenheimer): Which is a bigger catalyst for iGaming legislation—prediction markets or sweepstakes?
  Response: Both: prediction markets can erode sportsbook tax base and sweepstakes are untaxed competition; combined with state fiscal needs, both strengthen the case for regulated iCasino.

• Question from Chad Beynon (Macquarie): Is in-play/parlay mix improving hold and could normal outcomes raise year-over-year hold?
  Response: Mix shift toward parlays/SGPs and in-game has been positive; notwithstanding player-friendly outcomes, U.S. sports hold in Q3 hit a company record high.

• Question from Chad Beynon (Macquarie): On Colombia VAT impact—did Q3 beat versus expectations come from MAU growth or a smaller-than-expected VAT hit?
  Response: The guidance raise stems mainly from continued MAU acceleration and North American iCasino outperformance; Q3 saw stronger-than-expected bonusing pressure from VAT and favorable sports outcomes.

• Question from Michael Hickey (Benchmark): Are prediction market entrants (Kalshi/Polymarket) creating pressure in Delaware or other states?
  Response: No observable impact to date in states where RSI operates sports betting.

• Question from Michael Hickey (Benchmark): Would RSI integrate prediction-platform innovations into OSB/iGaming?
  Response: Management is monitoring for ideas but it's early; current prediction platforms are largely replicating sportsbook features—possible future cross-pollination.

• Question from Michael Hickey (Benchmark): Does political unrest in Colombia reduce appetite for LatAm expansion?
  Response: No; management remains enthusiastic about LatAm growth opportunities and sees Colombia issues as not deterring expansion or operational commitment.

Contradiction Point 1

Mexico's Market Opportunity and Growth Strategy

It involves differing perspectives on the growth trajectory and market opportunity in Mexico, which could affect strategic decisions and investor expectations.

Was the potential gaming tax increase in Mexico anticipated, and how will it impact operations? - Sam (JPMorgan)

2025Q3: We were not anticipating Mexico's gaming tax increase, but we're aware of it now. There are ways to reduce effective tax rates, and if enacted, we will adapt accordingly. - Kyle Sauers(CFO)

What's the scaling path for Mexico compared to Colombia? - Bernard Jerome McTernan (Needham & Company, LLC, Research Division)

2025Q2: Mexico is expected to become one of the largest markets, with growth accelerating. The company's unique user experience resonates well in the market. Its population size is multiples of Colombia, presenting a significant opportunity. - Richard Schwartz(CEO)

Contradiction Point 2

Colombia's Tax Reform and its Impact on Operations

It involves differing opinions on the likelihood and impact of Colombia's tax reform proposal, which could influence revenue growth and operating strategies.

How likely is Colombia's tax reform proposal to pass? What's your confidence level? - Bernard McTernan (Needham & Company)

2025Q3: We believe there's not sufficient congressional support for the President's tax reform proposal. The current state allows for a resume of normal tax conditions in Colombia. - Richard Schwartz(CEO)

What tax assumptions are in your guidance, especially regarding higher state taxes? What's your strategy in Illinois? - Bernard Jerome McTernan (Needham & Company, LLC, Research Division)

2025Q2: Regardless of the tax reform outcome, it would likely improve revenue growth in 2026. Operators may reduce bonusing, which would positively impact net revenue. - Kyle Sauers(CFO)

Contradiction Point 3

Colombia's Tax Impact

It involves the assessment of the impact of Colombia's tax policy on the company's revenue growth and operations, which is crucial for financial forecasting and strategic planning.

What is the impact of Colombia's tax reform on operations? - Ryan Sigdahl (Craig-Hallum Capital Group)

2025Q3: Regardless of the tax reform outcome, it would likely improve revenue growth in 2026. Operators may reduce bonusing, which would positively impact net revenue. - Kyle Sauers(CFO)

How did VAT tax promotions affect revenue and ARPDAU in Colombia? What is the outlook for the constitutional decree related to the tax? - Unidentified Analyst (Craig-Hallum)

2025Q1: The tax has significantly impacted net revenue growth. Our guidance includes scenarios with the tax lasting through the year, with potential upside if it's removed earlier. The tax is likely to end by the end of the year or within six months. - Kyle Sauers(CFO)

Contradiction Point 4

Focus on Product Innovation and Strategic Partnerships

It involves the changes in the focus areas of the CEO, which impacts strategic direction and resource allocation.

Why was Kyle promoted, and what will be your focus? - Bernard McTernan(Needham & Company)

2025Q3: I will now focus on online casino legalization and strategic growth opportunities while Kyle oversees operational aspects. My focus will also be on product innovation and strategic partnerships. - Richard Schwartz(CEO)

What is causing the slow pace of iCasino legalization in the US? - Jed Kelly(Oppenheimer)

2024Q4: And I'm still spending a lot of my time on legalization and a lot of our states are at different stages of legalization. - Richard Schwartz(CEO)

Contradiction Point 5

Mexico's Gaming Tax Increase

It involves the company's response to an unexpected gaming tax increase in Mexico, which could impact operational strategies and financial projections.

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2025Q3: We were not anticipating Mexico's gaming tax increase, but we're aware of it now. There are ways to reduce effective tax rates, and if enacted, we will adapt accordingly. - Kyle Sauers(CFO)

How are Mexico and Peru performing, and are there other target markets? - Chad Beynon (Macquarie)

2025Q1: Our expectation is that this will continue to overperform Colombia's performance post-launch. - Richard Schwartz(CEO)